When entrepreneurs start a new business, they should comply with all the legal obligations associated with running a small business. New businesses and start-ups have several legal requirements, including financial regulations, tax obligations, and labor laws. Make sure your new business meets all legal obligations so you can get back to growing your business.
These topics will guide you through the legal requirements for starting a business:
1. Assess the Viability of Your New Business Idea
Just because it’s easier to start an online business doesn’t mean no costs are involved. As with a physically based business, the first step to take with your online business is to assess your idea’s feasibility.
A good business idea may not succeed if there isn’t a market for it. If you’ve found a solution to a problem that affects many people but no one cares enough about to spend time and/or money solving, then you’re wasting your time and money.
With this in mind, you need to evaluate your idea. The following are just a few of the questions you need to ask yourself:
- Does your product or service solve a problem that enough potential customers have?
- Does your product or service provide a cost-effective solution to that problem?
- Are people willing to spend money to solve the problem?
- How costly will it be to reach the people in need of the solution your product or service offers?
2. Develop a Business Plan
Once you know your idea is feasible, it’s time to put together a comprehensive business plan. Even if you don’t plan on obtaining funding for your business, at least not initially, having a business plan is valuable because it lets you spot any potential bumps down the road and plan for future growth and profitability.
The work you did in step one gives you a good base from which to develop your business plan, and multiple resources are available online to help you put together the core elements of a solid plan.
An effective plan will help you to identify your market further, clarify your objectives, provide a marketing roadmap, and assist you in making the kinds of decisions that may mean the difference between success and failure.
3. Choose a Business Name
Choosing your business name is an important step in the startup process. Because your business will primarily function online, your chosen name must be available for registration as a business name in your state and within the digital space.
This means you will need to check whether the name you want is available as a:
- Business name in your state
- Domain name
- Username on each of the social media platforms you plan to use
If your chosen name isn’t available as a domain name or social media username, consider different permutations of the name, and remember that many domain name extensions beyond the original “.com” are available. Additionally, it’s important to check that your name and domain name aren’t impinging on any registered trademarks.
4. Decide on Your Business Structure
The business structure you choose will dictate the legal and tax requirements you need to meet. Most small business owners choose from the following structures:
You may have a great new business idea, but to get your start-up off the ground, you first need to make sure you meet all the legal requirements associated with starting a business.
Here’s an easy-to-follow guide to legally setting up your business:
Forming An LLC Or Corporation
The first legal requirement you must meet as a new business owner is to choose the corporate structure of your business. You can choose between forming an LLC or a Corporation. Both structures have advantages and disadvantages, so you should do your research well before choosing a business structure for your start-up.
Limited Liability Company (LLC):
An LLC protects you from personal liability under most circumstances. This means that if your business is sued or files for bankruptcy, your assets, including your home and vehicle, are not at risk. You can report your business income as part of your income tax with an LLC, but you will likely have to pay self-employment tax.
A Corporation is a business that is legally separate from its owner or owners. Of all business structures, Corporations offer the most outstanding personal protection from liability. However, they are more pricey and complicated to set up, and Corporations pay taxes on their profits separately.
Register Your Business Name
Once you have chosen a business structure, you will need to register your business name. Choose a name that reflects your brand and make sure it is not already taken. You can then register your business. There are four ways to register, each with its purpose:
- A company name: legally protects your business at the state level.
- A trademark: protects your business legally at the federal level.
- A DBA (Doing Business As): does not provide legal protection but may be required depending on your location and business structure.
- A domain name: protects your company’s web address
Apply For A Federal Tax ID Number
Your federal tax identification number is called an Employer Identification Number (EIN). It permits you to legally hire employees, pay federal taxes, apply for business licenses and open a business account. You can make an application for an EIN through the IRS website. Your business needs an EIN if you plan to do any of the following:
- Hire and pay employees
- File tax returns for employers
- Operating as a Corporation
- Use a tax-deferred retirement plan
Determine If You Need A State Tax ID Number
Research whether your start-up needs a state tax identification number. You only need one if the state in which you operate collects taxes from businesses. Since tax obligations vary from state to state, it’s best to visit your state’s website and learn about local laws regarding your income and payroll tax obligations.
Obtain Business Permits And Licenses
You will require to make an application for business licenses and permits at the federal and state level. The specific licenses you need will depend on the industry you are in and the location of your business.
The Small Business Administration has assembled a standard federal business licenses list by industry, a good starting point for your research.
At the state level, the licenses and allows required and the fees payable will depend on where you are located and your main business activities. State and local requirements depend on where you do business.
Protect Your Business With Insurance
Business insurance can shield you in cases where the personal liability protection provided by your specific business structure is not sufficient. Business insurance can protect not only your assets but also your business assets.
Some insurance policies are required by law, such as unemployment and disability insurance. It is also a great idea to take out business insurance to protect your start-up from other potential risks.
Some standard business insurance policies are:
- General liability insurance: Shield your business from several forms of financial loss, including property damage, injury, medical problems, lawsuit settlements, or court judgments.
- Product liability insurance: If your business sells products, this insurance protects you if one of your products is defective and injures a customer
- Commercial property insurance: Shield your business against loss or damage to company property due to natural disasters, accidents, or vandalism.
Open A Business Bank Account
From a legal viewpoint, you must separate your private and business finances before accepting payments from clients. Choose a favorable bank that meets your needs, e.g., by offering lower banking fees for small business customers.
Once you have chosen a bank, you will need to provide some information about your business to open an account, including:
- Your Employer Identification Number (or national insurance number in the case of a sole proprietorship).
- The incorporation documents for your business
- Your business license
- Ownership agreement documents
Consult The Professionals
To ensure that you meet all legal obligations as a new business, you should seek professional advice. Consider meeting separately with a lawyer and an accountant to ensure that your business is both legally and financially secure before you start it.
It’s always a good idea to consult with an attorney to determine the appropriate business structure for your new business. Because each structure has different tax requirements, you may also want to consult a tax professional.
Once you settle on a legal structure, properly record the business name with the state and/or county.
5. Build Your Website and Choose Your Sourcing and Fulfillment Methods
An online business’s website is as important as the physical location of a brick-and-mortar company, and you should put as much care into this part of the startup process as you would if you were location and lease shopping.
When looking at how you will build your website, consider available payment processors. For many online businesses, hiring a website developer to help build your site makes sound business sense.
The web host you choose is an important consideration as well. You can have a top-notch website, but it will do you no good if your host has too much downtime or if the speed of browsing your site is too slow.
In addition to checking out reviews online, consider asking your personal and business network contacts. Other online business owners, in particular, can provide invaluable information about a web host’s reliability.
Depending on the products or services you’ll be offering, you will also need to evaluate and choose your sources of supply and inventory, as well as how you will deliver your product or service to your customer. Again, a number of options are available. Given the importance of having inventory on hand—or a good on-demand provider—and a reliable method of fulfillment, spending adequate research time on this aspect can mean the difference between success and failure.
6. Develop and Implement Your Prelaunch Marketing Strategies
It’s important to market your online business while you’re working on each step of the process. You will have developed effective marketing strategies for your target market by following the steps outlined in your business plan. No matter what strategies you go with, it’s important not to skimp on implementation.
By building up your audience’s anticipation of your launch, you’ll be paving the way for an effective launch.
7. Launch Your New Business
While you won’t actually be “cutting the ribbon” the way you might with a physical business, you’ll be doing so metaphorically when you make your website live and announce to the world that you’re open for business.
This announcement can be made in a variety of ways, including:
- Social media platforms
- Your email list
- Online ads
- Traditional ads
During the launch phase, you will reap the benefits of the work you did during your prelaunch marketing.
Of course, your work will have only just begun, but by going through these eight steps, you will have built a solid foundation for your online business.
If you start building your business now, you can spend your time running and marketing your new company instead of having to deal with the various fires that may arise if you had neglected any of the steps outlined above.
We’re here to help you build a successful business online peacefully. By providing you with the tools, systems, templates, support, and training needed to automate, succeed and scale without complexity, chaos, or stress. Contact us at Appledew today.